China Could Buy Illinois, But Will Settle For Private Equity

The big news is that China is investing USD$3 billion in the giant buy-out firm, Blackstone. Remember how we wondered what China would do with all those dollars it has accumulated? It has enough to buy, say, the entire state of Illinois, if it wanted. But now we know…and it confirms two suspicions we have held for many months: the world financial system has gone mad…and the Chinese are simpletons.

In China, people line up to open brokerage accounts. Stocks soar. And when people want to exchange real money for paper (stocks, bonds, hedge fund accounts…) there are plenty of people ready to operate printing presses. So, we read in today’s Financial Times that there is a “Surge in Emerging Market IPOs.”

And now the Chinese government is taking its own money and investing it in the Blackstone magic…which consists of buying companies, putting them deeply in debt, cutting them up, charging huge fees, and selling them to the public – or at least to the other players in the market.

Of course, Blackstone couldn’t do this unless there were plenty of people with plenty of money to throw around on this sort of stuff. We have not only more evidence of that in today’s news…we also have an explanation.

For the evidence, we have a report from last week’s art sales – showing that prices paid for artworks hit new records of absurdity. Can you imagine paying USD$70 million for one of Andy Warhol’s slick inventions? Well, someone did. And others spent millions more on other works of art. How did they know they were valuable works of art…and not just silly pieces of pop trash? Ah…ah…ah…how did they know these objects had VALUE…and not merely prices? Ah…ah…ah…

As we said, our head is swimming…and we feel as though we might have to lie down.

But let us return to China’s purchase of a USD$3.3 billion share of Blackstone, which the papers tell us is a ‘historic event’…and the source of all this restless, reckless cash. Without all this money, Blackstone would have to settle down…all these wheelers and dealers would have to cool their heels…all these art buyers would have to restrain themselves…and all these emerging market companies would have to actually make money before they could sell IPO paper to the public. And now cometh the UN’s OECD with a pronunciamiento on where this money is coming from: from China and Japan’s lax money policies, sayeth the august institution.

Of course, that is what we’ve been saying for many months. But, at least we had the good grace to give credit where credit was due, by remembering that China and Japan are largely reacting to excesses pushed upon them by the United States of America. But since we are in a hurry this morning, we will leave that subject, and merely report that the OECD says China and Japan are responsible for the buy-out fervor. They allow institutional borrowers to get their hands on so much money, at such low interest rates, that Blackstone and the others are able to do all the deals they want.

In other words, when China finally comes to its senses – and stops goosing up its money supply at such a hell-bent speed – the buyout business will become a lot less interesting…and its shares in Blackstone should fall back to what they are actually worth.

But in the meantime, everyone has something to celebrate. The dead artists are happy – they meant to put one over on polite society. Now they have done it. China is happy too. Now the communists are fully-fledged members of the Inner Circle…the crème de la crème of 21st century capitalism. And of course Blackstone is delighted. Having the Chinese government as a partner opens up a whole new world of corrupt, insider deal making.

Oh…and we’re happy too. Of course we are. Who would have thought that watching the financial markets could have been so entertaining?

Bill Bonner
Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.

Bill Bonner

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